Wednesday 12 Dec 2018

Researchers release publication on the experience of financial hardship in Australia

By: Evgenia Bourova

Researchers at Melbourne Law School have published an article that provides insight into the experience of financial hardship for Australians at different levels of income.

The article is the result of a survey of 1,100 Australians who recently experienced financial hardship. Financial hardship refers to the situation where consumers find themselves unable to pay mortgage repayments, credit card bills, utility bills and other types of debt.

This survey was carried out by Evgenia Bourova (Research Fellow), Professor Ian Ramsay and Associate Professor Paul Ali as part of their work on the Financial Hardship Project. This was a research project funded by a Discovery grant from the Australian Research Council. It was completed in June 2018.

In the context of increasing economic insecurity and rising living costs, financial hardship can happen to almost anyone. However, this survey suggests that Australians who are already in a position of socio-economic disadvantage – particularly people living on social security incomes paid by Centrelink, and people living in rural or regional areas – experience debt problems at higher rates.

Legal protections are in place to allow Australians in financial hardship to negotiate payment plans and other arrangements with banks, utility companies and other creditors. Consumers who are unable to pay energy or water bills may also be eligible for additional assistance through “hardship programs” maintained by utility companies. These protections seek to allow consumers to reduce their debt and thus avoid consequences such as enforcement action, disconnection from their energy service, and bankruptcy.

Yet this survey suggests that only a minority of consumers in financial hardship are making use of these protections. Instead, consumers at all levels of income tend to get by financially by taking measures to reduce their expenditure – for some, to the point of foregoing essential living needs.

Financial hardship has negative impacts on consumers and their families, suggesting that their preferred strategies for coping with debt problems may not be effective. More than half of the survey respondents (50.8%) had trouble paying for basics (for example, food, utility bills and petrol) after their debt problems began. Thirty six per cent had mental health problems (including anxiety and depression), 27.5% had physical health problems, and 21.6% had trouble maintaining relationships with family and friends.

For consumers on Centrelink incomes, financial hardship has particularly serious consequences. By comparison to respondents whose incomes came from wages paid by an employer, far larger proportions of respondents on Centrelink incomes experienced mental or physical health problems, and had trouble staying involved in their community and maintaining relationships with family and friends.

On the basis of these findings, the researchers make recommendations for policy changes, including an increase to the benefit rate for recipients of the Newstart and Youth Allowances. They also call for additional funding for organisations providing financial counselling services to consumers in financial hardship.

Additional information on the strategies used by consumers to cope with debt problems is also contained in an earlier article. For more information on any aspect of this research, please contact Evgenia Bourova.